February 23, 2011 Via ECFS Marlene Dortch Secretary Federal
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A Professional Limited Liability Company Chicago Office 1333 New Hampshire Ave., NW, Fl 2 307 North Michigan Ave., Suite 1020 Washington, DC 20036 Chicago, Illinois 60601 Telephone: (202) 872-6811 Barbara S. Esbin Telephone: (312) 372-3930 Admitted in the District of Columbia Facsimile: (202) 683-6791 Facsimile: (312) 372-3939 February 23, 2011 Via ECFS Marlene Dortch Secretary Federal Communications Commission 445 12th Street, SW Room TW-A325 Washington, DC 20554 Re: American Cable Association (“ACA”) Notice of Ex Parte Presentation; In the Matter of Rulemaking to Amend The Commission’s Rules Governing Retransmission Consent; MB Docket No. 10-71. Dear Ms. Dortch: On February 22, 2011, Ross Lieberman, American Cable Association; Thomas Cohen, Kelley Drye & Warren, LLP; and the undersigned met with Joshua Cinelli, Media Advisor to Commissioner Copps; Jennifer Tatel, Legal Advisor-media issues to Commissioner Baker, Dave Grimaldi, Media Legal Advisor to Commissioner Clyburn; and Marilyn Sonn, Acting Legal Advisor for Media to Chairman Genachowski. During the meeting, ACA discussed the issues raised in its comments filed in support of the Petition for Rulemaking and as reflected in its ex parte letter filed February 16, 2011, including the matters of (i) retransmission consent price increases resulting from joint negotiations involving multiple “Big 4” (i.e., ABC, NBC, CBS, and FOX) broadcast affiliates in a single market, and (ii) retransmission consent price discrimination against smaller multichannel video programming distributors (“MVPDs”).1 ACA presented information derived from the analysis of its economic expert, Professor William P. Rogerson, Northwestern University, that was submitted with the ACA February 16th Ex Parte Letter and 1 In the Matter of Petition for Rulemaking to Amend the Commission’s Rules Governing Retransmission Consent, MB Docket No. 10-71, Comments of the American Cable Association (filed May 18, 2010) (“ACA Comments”); In the Matter of Petition for Rulemaking to Amend the Commission’s Rules Governing Retransmission Consent, MB Docket No. 10-71, American Cable Association Notice of Ex Pate Presentation (filed Feb. 16, 2011) (“ACA February 16th Ex Parte Letter”). Marlene Dortch February 23, 2011 Page 2 also attached to this letter as Attachment A.2 ACA also discussed how the Commission could provide effective relief through changes to its definition of “good faith” negotiations to prevent joint retransmission consent negotiations and prevent undue price discrimination against smaller MVPDs and their subscribers. With respect to the problems of joint negotiations and price discrimination, ACA urged the Commission, as part of this proceeding, to gather data that would allow it to better determine the extent and magnitude that both matters affect retransmission consent fees, should it determine that such information is necessary to inform its decision. ACA stated that many of its members would be willing to file their retransmission consent agreements with the Commission for this specific purpose. ACA suggested that the Commission establish in the NPRM confidentiality safeguards for highly sensitive data comparable to those used in its license transfer reviews and another recent matter,3 and encourage broadcasters to waive any confidentiality provisions contained within these contracts that would prevent the voluntary submission of a contract into the record by an MVPD. In summary, ACA stressed that it is incumbent upon the Commission, as it undertakes its first major evaluation of the retransmission consent framework, to include in its Notice of Proposed Rulemaking: language that expressly solicits comments on carriage fee increases resulting from joint negotiations involving multiple “Big 4” broadcast affiliates in a single market and price discrimination against smaller MVPDs; and language that seeks data from MVPDs and broadcasters to analyze these issues. 2 William P. Rogerson, Professor of Economics, Northwestern University, “Two Problems with the Current Retransmission Consent Regime,” Presentation to the FCC, American Cable Association, February 12, 2011 (“Rogerson Presentation”). 3 See, e.g., In the Matter of Special Access for Price Cap Local Exchange Carriers, WC Docket No. 05- 25, AT&T Corp. Petition for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier Rates for Interstate Special Access Services, RM-10593, Second Protective Order, (rel. Dec. 27, 2010) (“Second Protective Order”); Data Requested in Special Access NPRM, Public Notice, WC Docket No. 05-25, RM-10593, DA 10-2073 (rel. Oct. 28, 2010). To ensure, as part of its pending Special Access rulemaking proceeding, that it could analyze the extent of competition in markets for the provision of special access telecommunication services, the Commission recently established a process that encouraged the filing of relevant confidential and proprietary ("competitively sensitive") information. First, the Commission issued a request to the public to submit voluntarily extensive and detailed information about special access facilities deployment and use, both current and planned. Second, because the Commission found that submission of such information, even if competitively sensitive, was “necessary to develop a more complete record on which to base the Commission’s decision in this proceeding and therefore require production,” it adopted a Second Protective Order “to ensure that certain highly confidential and competitively sensitive documents and information that may be submitted are afforded adequate protection.” Second Protective Order, ¶¶ 1, 3. As part of this order, the Commission enabled parties submitting materials of a competitively sensitive nature to designate those materials as Highly Confidential, and it limited access to that material to “Outside Counsel of Record, their employees, and Outside Consultants whom they retain to assist them in this proceeding.” Id., ¶ 3. CINNAMON MUELLER Marlene Dortch February 23, 2011 Page 3 If you have any questions, or require further information, please do not hesitate to contact me directly. Pursuant to section 1.1206 of the Commission’s rules, this letter is being filed electronically with the Commission. Sincerely, Barbara S. Esbin Enclosure cc (via email): Joshua Cinelli Jennifer Tatel Dave Grimaldi Marilyn Sonn CINNAMON MUELLER ATTACHMENT A TWO PROBLEMS WITH THE CURRENT RETRANSMISSION CONSENT REGIME Presentation to the FCC American Cable Association February 15, 2011 INTRODUCTION 1. Conclusions of Petition for Rulemaking - changes in market structure that have occurred since the introduction of the current retransmission consent framework have fundamentally altered the balance of bargaining power between local broadcasters and MVPDs in favor of local broadcasters - increased competition in the MVPD market has reduced the bargaining power of MVPDs - Result #1: Retransmission consent fees are rising to much higher levels than were ever originally contemplated when the current rules were introduced. These fee increases are largely passed through to subscribers in the form of higher subscription fees. - Result #2: Increasing occurrence of temporary withdrawals of broadcast signals during negotiations in which broadcasters attempt to exercise their increase bargaining power. 2. Petition suggests that introducing some form of binding arbitration with mandatory interim carriage would be an appropriate solution to these problems. 1 INTRODUCTION (CONT’D) 3. ACA agrees with the conclusions of the petition for rulemaking and supports the proposed solution of introducing some form of binding arbitration with mandatory interim carriage. 4. Purpose of today’s presentation: - describe two additional problems with the current retransmission consent regime that the Commission should also consider addressing in its over-all review of retransmission consent policy - joint control or ownership of multiple Big 4 broadcast stations in the same market - price discrimination - suggest approaches the Commission could take to addressing these problems - although these problems with the current system have existed since its inception, they have grown more serious in magnitude as retransmission consent fees have risen and will continue to grow more serious in magnitude as retransmission consent fees continue to rise further. 2 JOINT CONTROL OR OWNERSHIP OF MULTIPLE BIG 4 BROADCASTERS IN THE SAME MARKET 1. Background 2. Evidence on the Extent of Joint Control or Ownership 3. The Problem With Joint Control or Ownership: Theory 4. The Problem with Joint Control or Ownership: Evidence 5. Possible Solutions 3 BACKGROUND 1. Joint Ownership - Commission rules generally prohibit common ownership of multiple Big 4 broadcast stations in the same DMA - however, there are a number of instances where common ownership has been permitted through waivers or exceptions 2. Joint Control - separately owned Big 4 broadcast stations in the same DMA sometimes agree to jointly negotiate retransmission consent agreements. - such arrangements are often negotiated as part of more comprehensive agreements that transfer control of all or part of the operations of one station to the management of another stations - terms used to describe such agreements include: - Shared Services Agreements (SSAs) - Local Marketing Agreements (LMAs) - Joint Marketing Agreements (JMAs) 4 EVIDENCE ON THE EXTENT OF JOINT CONTROL OR OWNERSHIP 1. Using publicly available documents, ACA has complied a listing of instances of common ownership or